Foghorn Therapeutics Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with the year ended December 31, 2021. Foghorn is a clinical-stage biotechnology company with no approved products or product-sale revenue. Its pipeline targets the chromatin regulatory system using its Gene Traffic Control platform.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Collaboration revenue | $19.2 million | $1.3 million |
| Research and development expense | $105.6 million | $80.3 million |
| General and administrative expense | $30.7 million | $21.7 million |
| Operating loss | $117.1 million | $100.7 million |
| Net loss | $108.9 million | $101.3 million |
| Net loss per share, basic and diluted | $2.62 | $2.73 |
| Operating cash flow | $193.6 million provided | $50.3 million used |
Revenue came from collaborations, not product sales. Revenue increased mainly as Foghorn recognized more of the Lilly collaboration consideration and recorded a Merck research milestone. Operating expenses rose as clinical programs, research, headcount and public-company costs expanded. Interest income increased to $5.7 million from $0.1 million; debt-related interest expense and extinguishment loss recorded in 2021 did not recur after the Oxford Finance loan was repaid.
At year-end, cash, cash equivalents and marketable securities totaled $345.8 million ($52.2 million cash and equivalents; $293.6 million marketable securities), versus $154.3 million in cash and marketable securities at year-end 2021. The company reported no outstanding debt. Management expected available funds to cover operating expenses and capital expenditures for at least 12 months from the financial-statement issuance date, while cautioning that estimates may prove inaccurate and additional funding will be needed. The $193.6 million of operating cash provided in 2022 was materially affected by collection of the $300 million Lilly collaboration receivable; it should not be read as recurring operating cash generation. Investing activities used $244.3 million, primarily for purchases of marketable securities.
Accumulated deficit was $373.1 million. Collaboration revenue increased, but losses widened. Profit margins are not meaningful given the absence of product sales and continued development-stage losses. The filing does not provide a product-sales or profitability forecast.
Business developments, outlook and material risks
- FHD-286: The oral BRG1/BRM inhibitor was in Phase 1 studies for metastatic uveal melanoma and relapsed/refractory AML and MDS. The FDA placed the AML/MDS study on full clinical hold in August 2022 after potential differentiation syndrome and possible links to grade 5 safety events. The uveal melanoma study was unaffected. At filing, management expected initial uveal melanoma data in the first half of 2023 and aimed to clarify the AML/MDS development path in that period; FDA clearance was not assured.
- FHD-609: The intravenous BRD9 protein degrader was being studied in Phase 1 for synovial sarcoma and SMARCB1-loss tumors. Foghorn anticipated initial clinical data in mid-2023. Two patient biopsies presented in 2022 showed BRD9 degradation, an early target-engagement finding, not evidence of clinical efficacy.
- Pipeline and platform: Management described more than 15 programs and stated an ambition to file at least six new INDs over the next four years. These are forward-looking goals, not assured outcomes.
- Collaborations: Lilly paid a $300 million upfront collaboration fee in January 2022 and had made an $80 million equity investment in December 2021. The Lilly agreement covers joint and discovery programs, with potential U.S. profit sharing, royalties and milestone payments subject to contract terms and development success. Merck paid a $5 million research milestone in 2022; additional milestones and royalties are contingent and uncertain. At year-end, deferred revenue was $319.8 million for Lilly and $17.0 million for Merck, to be recognized over future performance periods—not new cash expected in full.
- Principal risks: The company has no approved products, has incurred substantial losses, expects continued losses and requires additional capital. Clinical, regulatory, safety, trial-enrollment, manufacturing and intellectual-property risks are significant. Foghorn relies on third-party manufacturers and research organizations. Its patent portfolio was at an early stage; the filing states it did not own or license issued patents covering FHD-286, FHD-609 or the platform at the stated disclosure date.
There were no material legal proceedings reported. The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness because Foghorn qualified for the emerging-growth-company exemption.
Most important facts for investors to verify
- Subsequent FDA actions and safety findings concerning the FHD-286 AML/MDS clinical hold, and whether the study resumed or its development plans changed.
- Clinical data, safety, dose selection and enrollment progress for both FHD-286 and FHD-609; distinguish target engagement from demonstrated patient benefit.
- Actual cash use and runway relative to the stated minimum 12-month estimate, particularly given recurring losses and the unusually large Lilly-related cash-flow effect in 2022.
- Progress, costs, rights and economics under the Lilly and Merck agreements, including milestone conditions, Foghorn’s options and any changes to revenue-recognition estimates.
- Progress in obtaining and maintaining meaningful patent protection for the lead candidates and platform, and whether planned IND filings are achieved.